Thoughts on NZ Employment Laws and COVID-19

Employers changing their employees working conditions and pay during this COVID-19 lockdown are currently facing the greatest challenge to society and to business survival we have ever seen. Employees too, are standing on the brink of massive personal and financial challenges and are depending on their employers, and on the Government to help them through a time when they literally have no options outside of those two. Australia has the stand down provisions in their Fair Work Act, which provide clarity and strong guidance to employers and predictability to employees. New Zealand does not have this legislation.

Can employers regard themselves as not needing to comply with employment law because of the impact of COVID-19 Alert level 4 (the total lockdown of NZ).

This is an important question. Alert level 4 instructions and NZ employment laws are completely separate things, and the COVID-19 alert level 4 restrictions do NOT cancel out employer’s obligations to comply with employment law. The law still stands. Any change to this would take specific Government intervention, and also with ours being a Labour led Government, this is not very likely.

Practically, what does this mean, though? Well, it means different things for different employers, because some employers can continue to trade, and require their employees to continue working in order to do so. For these employers, life continues pretty much as normal in the legal sense. Others cannot trade, and they are trying to cope with a rapid change to their business world. For these employers, is there a different standard?

There are three main changes that employers are considering or have implemented during the initial phases of Alert Level 4, because of the complete trading halt. These changes are hopefully temporary but there may come a time when they might have a more permanent impact on employment.

1. Forced leave of various types because of an inability to work.
2. Changes to employees pay because of inability to afford wages
3. Redundancies because of an inability to afford wages, or a business structure that cannot resume business in the same way, in future.

But first:

A Herd of Elephants in the Room

Let’s address the three massive tuskers in the room head on:

Elephant One
Cashflow. If SOMETHING significant weren’t to happen, an unchanged wage bill will crush an employer out of business very fast if they are unable to trade. Most employers do not have savings accounts with 4-12 weeks’ worth of payroll (and other costs) just sitting there. Most employers do not have access to loans or capital that could tide them over a 4-12 week trading shutdown either.

What would the impact be of being unable to make fast, temporary changes to employment conditions, including pay? Well, in a very short while, perhaps even 2-3 weeks, the business would have no money, and likely, huge debt. But no-one (except governments!) can spend money (or credit) that they don’t have, so logically there will come a time when all access to funds runs out and a business is quite simply, frozen in place. Larger businesses may not experience this to the same extent, but smaller businesses – the bulk of the New Zealand economy and its major employer – certainly will.

A reasonable person would ask: “Is THAT the time to take steps to save a business?” Obviously, a business in that position is at risk of being now almost beyond saving. It may be able to physically re-open its doors at some point in the future, but will it have employees? Raw materials? Fuel? Customers? Will it have ANY funds at all to start up operations? And will it have sufficient turnover thereafter to service its now crippling debt?

Of course, other plans might be made with banks, creditors and suppliers to lubricate the restart, but no-one knows at this point. No one knows.

So, practically, it can be argued that we are looking at the employment laws in an environment that they were not made for. To say they apply exactly as they would in a normal business environment would be a very interesting and possibly tone-deaf statement. But it is also not clear how they can be implemented differently and more suitably, to the circumstances.

Elephant Two
The pace of change. New Zealand went from Alert Level 2 (business as normal, with caution) to Alert level 4 (complete lockdown), in just two days. In two days, I think it is safe to say that there is barely a single employment law principle and process that could actually have been complied with well.

An employer can barely give fair notice of a simple disciplinary enquiry in just under two days. Let alone conduct a full restructuring exercise, or a full and proper consultation with employees about business change and the way forward. In the normal course of events, we all know good faith consultation takes significant amounts of time. Time for preparation of proposals, advance notice of meetings, time to consider, seek advice and respond, more meetings, and a decision. And then of course, writing letters and more notice before actual implementation.

This time, quite simply, did not exist when Alert level 4 was implemented.

Elephant Three
Communication. People were suddenly not at work. There was no-one to “meet” with! The instant challenge was in HOW to talk to people, HOW to consult. Phone calls are individual, and availability is not guaranteed. Conference facilities and software may exist; but are not always available or possible. What facilities do New Zealanders have at home, to participate in such meetings? For some, they have none. Part of consultation is seeking advice. Practically speaking, from whom would an isolated employee get that advice?

Guiding principle

It is my thinking that strict processes that have been established by court decision after court decision, and are an enduring gold standard for our employment environment, but it is possible to argue that they can simply not reasonably be complied with in these circumstances.

Can the principle of good faith, the founding principle of our employment law, stand on its own, as a yardstick by which employers can be required to operate?

In a world where time frames have gone out the window, where life and health are increasingly at risk, and rapid responses are required, employer intentions, employer efforts and the reason for making a decision can be argued to be more important than strict process compliance. Process compliance is a way of ensuring the protection of employee rights. It has become a requirement, and justifiably so. Statistics from the Labour Inspectorate and from the ERA clearly show that there are many employers who would take significant liberties without strong procedural boundaries.

The principle of good faith can serve as a strong and clear guiding principle to assist employers to make the best decision possible in impossible times.

“Good faith means dealing with each other honestly, openly, and without misleading each other. It requires parties to be active and constructive in establishing and maintaining a productive relationship in which they are responsive and communicative.”

Everyone knows the outcomes in this time will be hard for employees. And for employers. It is hard to know who will benefit from any of this.
In the light of these thoughts, we come back to the three common employer strategies:

Forced leave
Forced leave is a temporary solution as all it does is stop work from happening for a while; and calls on financial resources that are already set aside for the employee. In New Zealand law, forced leave is very rare. Most leave is initiated by the employee, and the employer can request different dates in certain circumstances. Forcing an employee to take leave ordinarily requires the agreement of the employee. Most forced leave in New Zealand is the annual shutdown which everyone accepts. This is very different, obviously. Forced leave in the COVID-19 environment literally has no guaranteed end date in sight; and will therefore at some point – necessarily – turn into unpaid leave. Of course this is stressful for any employee to contemplate. The idea here is that employment relationships will remain, and people will hopefully have an employer to return to once this is over.

Changes to Pay
Reducing employees pay was clearly envisaged by the Government in introducing the Wage Subsidy, in their stipulation that employers make their “best efforts” to pay 80% of an employee’s normal pay. This has subsequently been revised even further to indicate that at the very least, employers must pass on the wage subsidy. The reason for the revision was that instantly, the effects of the costs of a payroll that was only partly subsidised, was felt – employers started “bleeding out”. Slower than without the subsidy, of course; but measurably and seriously, and the government realised this.

Ordinarily this is a hugely contentious situation – employees do not take too kindly to being asked to work for less pay, even less kindly to being TOLD to work for less pay. Speaking as an employee here, it is not like we can resign and go elsewhere, is it? It is safe to say very few employers are hiring. And it’s not like we don’t understand why it is happening, is it? If we were to consider lodging a grievance or a dispute about this, could we? Should we? How does the fact that this affects the ENTIRE economy change things? How would a mediator or the ERA view such a dispute? And, exactly what we are considering here – what laws would be applied? Strict process, good faith, or something else?

Payroll is not the only ongoing cost, and no matter the subsidy, there may come a point where those other costs become a mortal wound to a business. Potentially though, a slower loss of “blood” might mean the business can survive in some form or another. Which is better? A business that survives to employ people again, or one that doesn’t because it was forced to spend itself out of existence?

Would a future employment court suddenly order all NZ employers, in say a few months’ time, to backpay all lost wages, for all employees, with penalties, if they didn’t follow an exact process? I don’t know, I guess. It would be interesting to see how that could practically happen.

Redundancies occur when a restructuring of a business leads to loss of positions and there are not alternative positions or deployments available for the employees who were employed in those positions. Restructuring can be initiated because of a desire or need for increased efficiency, new/changed technology or processes; or it can occur when a business simply has to reduce in size for economic reasons – the loss of a major customer, for example. We are in that latter environment, but it’s not just one company losing one major customer, it’s MOST companies losing ALL customers. For an unknown length of time, but at least 4 weeks, more likely 8-12 weeks. And even after that the recovery will be painful, slow and uncertain. For some, the loss of income is already permanently damaging.

So, in the light of the above, do normal processes apply? Normal time frames? Normal consultation requirements? Do they? We don’t know. Should they? Maybe not.

What is the “new Normal”?

Employers are caught between a rock and a very very hard place. If they comply with the letter of the law, in terms of process and procedure, change will probably come too slowly to ensure business survival. The law has not been suspended by the Alert level 4, and so, in reality, it can be argued that full compliance is what should happen.

On the other hand, the example set by government clearly indicates that there is now a situation of overriding emergency, and time is clearly of the essence. Getting into survival mode is the most important thing. In New Zealand, how we do that is very important and while I think it is clear that normal employment law processes cannot always apply, the founding employment law principle of Good Faith can and certainly does apply.

So, employers, please:

1. Be open and honest. Play open cards
2. Communicate as much and as often as you can. The unknown is a terrible place. As much as you are feeling it as a business owner, your employees are feeling it worse. Help your employees feel empowered with as much information as you can give them. It is not a time for information games.
3. Do everything in your power to lessen the financial impact on your business and especially on your employees. Get the subsidy. Negotiate payment holidays and zero/low interest facilities.
4. Treat everyone consistently and as far as possible, exactly the same.
5. Be kind, and empathetic. Bring humanity to the situation.
6. Follow the processes wherever you can, of course. You may have to shorten time frames, but the principles of the processes are the same principles that define good faith. try to get it right, and if you can’t, explain why and document it for future reference.
7. Document what you have done, in great detail. (Literally, as an example, down to the level of screenshots of phone call attempts). Assume that you will be asked to justify your actions and your decisions.

The Way Forward from here

With urgent time frames past, and a measure of predictability available, the excuse of urgency and a lack of time to respond and prepare, may be less plausible.

Now that you are through the initial urgent phase of reflex action and hunkering down into survival mode, if more changes are coming, you DO now have sufficient time to follow processes more completely. Therefore, do so.

The principle of good faith means you try your best to follow the normal processes and if you can, then you do.


About Vaughan Granier

Just Thinking...
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